More and more background screening firms – also known as Consumer Reporting Agencies or “CRAs” – are facing lawsuits concerning the accuracy of background check reports and the failure to meet the guidelines of the federal Fair Credit Reporting Act (FCRA) that regulates background checks and the collection, dissemination, and use of consumer information in the United States. It is anticipated that in 2013, this trend towards lawsuits will continue as the government and job applicants become more familiar with the FCRA. This is Trend Number 6 of the 6th Annual ‘ESR Top Ten Background Check Trends for 2013’ available at http://www.esrcheck.com/Top-Ten-Background-Check-Trends-for-2013.php.

For background screening firms, the trend will mean that it is even more critical to review policies and procedures to ensure accuracy and legal compliance given how heavily regulated background checks are. Class action lawsuits tend to focus on either legal compliance with the FCRA or questions of accuracy. In 2012, several FCRA-related class action lawsuits that were reported about by ESR News show the need for legal compliance by employers and background screening firms with the FCRA:

November 2012: A large background screening firm facing a class action lawsuit alleging inaccurate reports in violation of the FCRA failed in its attempt to have the FCRA declared unconstitutional on the basis that it violates the right to free speech under the First Amendment. A U.S. District Court for the Eastern District of Pennsylvania ruled on November 6, 2012 that the FCRA was constitutional since it regulated information disseminated for private purposes for a fee, and not to the public. The lawsuit alleged that the screening firm provided inaccurate reports by providing a prospective employer with information on past arrests that were dismissed and were older than seven years, which is prohibited by FCRA section 605 (U.S.C 1681c). That law prohibits a CRA from providing arrests records to employers that are more than seven years old. There is an exception, however, if the annual salary is expected to be $75,000 or more a year. The ruling had the effect of denying the background firm’s effort to have the case dismissed. More information about the ruling on the case, No. 10-6850, is available at http://www.paed.uscourts.gov/documents/opinions/12D1046P.pdf. See: http://www.esrcheck.com/wordpress/2012/11/13/court-holds-federal-fair-credit-reporting-act-is-constitutional-and-does-not-violate-first-amendment/ .

April 2012: A class action complaint filed against a CRA on April 16, 2012, alleges that the Defendant reported inaccurate criminal data obtained from an “instant” criminal record search without courthouse confirmation, and also that there was allegedly no notice to the consumer who was the subject of the search. The suit also alleges that such acts were in violation of the FCRA that protects consumers from inaccurate or irrelevant information and failed to meet the standard of accuracy and fairness mandated by the FCRA. The Plaintiff claimed that the Defendant – a CRA that collects consumer information and sells “consumer reports” that are also known as background checks – failed to meet the standard of accuracy and fairness mandated by the FCRA, which requires all CRAs that report criminal conviction and other information to employers adopt and implement procedures that “assure maximum possible accuracy of the information concerning the individual about whom the report relates.” See: http://www.esrcheck.com/wordpress/2012/04/20/class-action-complaint-filed-against-consumer-reporting-agency-for-allegedly-violating-fair-credit-reporting-act-with-instant-database-searches/ .

January 2012: Another class action alleging that an employer did not comply with the legal requirements of the FCRA, a federal court in Maryland refused a motion to dismiss a class action that alleges that Domino’s Pizza failed to comply with the requirements of the FCRA, the federal law that regulates pre-employment background screening. The lawsuit contended that both plaintiffs were the subject of background checks, had started working, and later were terminated after the background check was completed. In both instances, the plaintiffs were not provided with a copy of the report or advised of any rights before the termination. In addition, both plaintiffs alleged that the background screening consent they signed included a release of liability for the background check on the form that was part of the application packet. The form was called a “Background Investigation Information and Consent” or BIIC. As a result, according to the complaint, the employer failed to meet the legal requirement for a “standalone” form since the BIIC contained extraneous information and was not separate. In this case, the Court ruled that Domino’s failed to show that its interpretation of the FCRA was “not objectively unreasonable.” At this stage of the case, the Court denied the motion to strike the punitive damages. This does not mean the Court determined that Domino engaged in any wrongful procedures, but just that the allegations would not be thrown out. See: http://www.esrcheck.com/wordpress/2012/01/30/background-check-class-action-against-employer-for-violations-of-the-fair-credit-reporting-act-survives-challenge/.

ESR News also reported on several FCRA-related class lawsuits for the previous year of 2011:

December 2011: In a recent example, a class action case filed against one of the nation’s top 10 banks on behalf of an employee alleging violations of the FCRA shows that legal compliance is a critical part of any background screening program. According to the Plaintiff’s Attorneys, the lawsuit alleges that the financial institution obtained background checks in violation of the FCRA and failed to provide required notices. The Plaintiff seeks to represent a class of all of the financial institution’s employees and job applicants for the past three years. The lawsuit alleges the financial institution violated the FCRA in two ways. First, the lawsuit alleges that the financial institution’s authorization form is flawed. The Plaintiff alleges that by burying its background check authorization in a job application, including extraneous information, the financial institution violated the FCRA rule that requires that a consumer receive a “clear and conspicuous” disclosure in a document that consists solely of the disclosure that a background report may be obtained for employment purposes. Second, the lawsuit also alleges that the financial institution failed to provide copies of the background reports when it used them to take adverse employment actions. The FCRA requires employers to provide consumers with copies of their background checks if the employer intends to take adverse action that is based in any part on the background check report, along with a statement of rights prepared by the Federal Trade Commission (FTC), so consumers have an opportunity to contest any information they feel is inaccurate or incomplete. Based on the Attorneys for the Plaintiff’s understanding of the financial institution’s practices, everyone who has applied or worked for the financial institution in the past three years should be eligible to receive statutory damages if the lawsuit succeeds. See: http://www.esrcheck.com/wordpress/2011/12/15/new-class-action-lawsuit-against-major-financial-institution-for-fcra-violations-demonstrates-importance-of-legal-compliance/.

September 2011: A class action lawsuit that was allowed to go forward by a federal district court earlier this year underscores the importance of employers following FCRA when conducting background checks, and working with background screening firms that help educate employers on following basic procedures. The case alleged that an employer committed two violations of the FCRA. First, the employer disqualified job applicants on the basis of information from a consumer report without appropriate disclosure forms from the applicant. Second, after disqualifying the applicant, the employer failed to give the applicant a reasonable period of time to dispute the information contained in the report before refusing to hire that applicant. In other words, the class action suit alleged a violation of the “pre-adverse action” requirements whereby a an applicant to a reasonable time to review and dispute the background check report before a final action is taken to deny employment. See: http://www.esrcheck.com/wordpress/2011/09/16/class-action-lawsuit-demonstrates-importance-of-employers-following-the-fair-credit-reporting-act/.

August 2011: A class action lawsuit filed in federal court on August 23, 2011 underscored once again the importance of background screening firms following the FCRA. According to the civil complaint for damages, a background screening firm allegedly reported sexual offender data on applicants based solely upon a name match only, without making any effort whatsoever to confirm if the data belonged to the applicant. The suit alleges that such a practice violated the rule contained in FCRA section 607(b) that a screening firm must take reasonable procedure to assure maximum possible accuracy. In addition, the class action suit contended the screening firm “also reported public record information to employers without informing consumers that such information was being reported and without maintaining strict procedures to assure that the public information that it reported was complete and up to date” as required by FCRA section 613. In this case, the lead plaintiff had a common name, and the screening firm reported seven possible sexual offender matches relating to three individuals with the same name. Based upon his allegations, it appears that matching the records to the plaintiff would have demonstrated the sexual offender record did not belong to the plaintiff. As a result, the lawsuit alleges that the background screening firm acted in reckless disregard of its duties, and is seeking punitive on behalf of the class of individuals who have been wrongly identified as sex offenders by the screening firm as well as attorney’s fees. See: http://www.esrcheck.com/wordpress/2011/08/30/class-action-case-shows-importance-of-background-screening-firms-following-fair-credit-reporting-act-when-reporting-sexual-offender-data/.

March 2011: In a case that once again emphasizes the importance of employers following the FCRA for employment screening, attorneys for thousands of mass-transit drivers and school bus drivers announced approval of a class action settlement of 4.3 million dollars for failure to adhere to the requirements of the FCRA. The proposed settlement was approved by a federal Judge in Illinois stemming from a national class-action suit involving allegations of FCRA violations against sister companies that employed drivers. The suit alleged that the two companies – both subsidiaries of a company in Great Britain – obtained criminal background checks on drivers and job applicants without their written authorization and in some cases denied them jobs without providing them a copy of their criminal background report in violation of the federal FCRA law. The FCRA requires that all background checks be conducted with consent and that in the case an adverse employment action occurring as a result of a background check, the applicant is entitled to certain notifications including a copy of the report. The overall settlement was for $5.9 million, with $4.3 million going to the class action and the court awarding an additional $1.6 million for court costs and attorneys fees. See: http://www.esrcheck.com/wordpress/2011/03/18/class-action-for-failure-to-follow-fair-credit-reporting-act-for-employment-screening-settles-for-4-3-million/.

All of the cases mentioned also underscore the fact that background checks are heavily legally regulated, and that employers are best served by working with a professional background screening firm that provides assistance with legal compliance, and not just a data vendor that sells reports. Although a background screening firm cannot provide legal advice, a background screening firm can currently advise an employer on basic compliance issues and industry standard approaches. The cases also demonstrates why an employer should consider only working with a background screening firm that is accredited by the National Association of Professional Background Screeners (NAPBS). As part of the accreditation process, a background screening firm must demonstrate that it provides Client Education, including Client Legal Responsibilities, Client Required Documents, and Adverse Action compliance. For more information on accreditation, visit: http://www.esrcheck.com/ESR-NAPBS-Accreditation.php.

Background checks are a necessary step in avoiding “bad hires” and negligent hiring lawsuits. Even after the most diligent candidate selection process, hiring someone without conducting a thorough background check can lead to major legal and financial ramifications for your company. If a new hire is dishonest about his or her education, employment or criminal history, employers could face the burden of having an unfit or unqualified worker wasting time and resources or even having a violent employee in their office. If employers hire employees they knew – or in the exercise of reasonable care should have known – were dangerous, unfit, or unqualified for the position, employers can be sued for negligent hiring if injuries or death occur.

These lawsuits demonstrate that violations of the FCRA can create large potential liability. Potential class members, including employees and prospective employees, may be entitled to statutory damages of up to $1,000 for each violation in the case of will non-compliance. Class action lawsuits also create exposure for large awards of attorneys fees and the potential exposure to punitive damages. A United States Supreme Court case decided in June 2007, Safeco Ins. Co. v. Burr, 551 U.S. 47, substantially increased the risk of punitive damages under the FCRA by ruling that a reckless disregard of the FCRA could be sufficient to show “willful” non-compliance. The net effect is that it is now easier to sue an employer or a background screening firm for punitive damages. More information about the case Safeco Ins. Co. v. Burr is at: http://www.esrcheck.com/newsletter/archives/June_2007.php#T1.

To be clear, the mere fact that a lawsuit is filed and allegations are made by no means proves the validity of the claims, and filing of the lawsuit is merely the first step in the legal process. However, these FCRA-related lawsuits underscore the need for employers to carefully review background checking programs and to work with accredited background screening firms that can provide information to assist in compliance with the federal FCRA and various other laws concerning background checks.

More information about these trends is available in the updated 2nd Edition of “The Safe Hiring Manual” by ESR Founder and CEO Attorney Lester Rosen. For more information, visit http://www.esrcheck.com/SafeHiringManual.php.